Netflix Beats Fourth-Quarter Subscriber Guidance

Netflix NFLX ended an impressive 2020 with strong subscriber growth, beating our estimate and relatively conservative management guidance provided a quarter ago. Despite the subscriber beat, revenue was in line with our projections for the quarter. We still believe that the global rollout of Disney+ and the launches of Peacock and HBO Max will increase churn and pressure gross adds for Netflix over the near future. However, Netflix is tracking ahead of our previous expectations on free cash burn and margin expansion. As a result, we are raising our fair value estimate to $250 from $200. We continue to believe Netflix’s share price assumes unrealistic long-term growth and profitability.

Netflix posted stronger-than-expected subscriber growth (8.5 million net additions, with 0.9 million in the U.S. and Canada, or UCAN, versus guidance of 6.0 million). The company no longer provides guidance for domestic and international net additions. Netflix ended the quarter with more than 203 million global paid subscribers, up 22% from 167 million a year ago. Europe, Middle East and Africa, or EMEA, was the strongest segment, accounting for over half of the net additions for the quarter and over 40% of net additions for the year.

Revenue increased 22% versus a year ago to $6.6 billion during the quarter. UCAN revenue improved by 12% year over year as the firm benefited from the price hike in 2019 and a larger subscriber base. ARPU was up 2% versus a year ago to $13.51, which implies the majority of customers are on the standard HD plan ($13 during most of the quarter), with a growing share on the 4K plan (at $16). Netflix announced a price hike in November 2020 with most subscribers likely seeing the $1 increase on the HD plan or a $2 increase on the 4K plan on their December bills.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.